Oil prices have reached a two-week high as investors anticipate a potential interest rate cut by the US Federal Reserve, which is expected to boost economic growth and energy demand. The price increase is also attributed to concerns over geopolitical risks that could impact Russian and Venezuelan oil supply.
Brent crude futures rose to $63.84 a barrel, while US West Texas Intermediate crude reached $60.16, with both contracts closing at their highest levels since November 18. The likelihood of a quarter-point rate cut by the Federal Reserve is currently at 84%, according to LSEG data. However, the meeting is expected to be divisive, with investors closely watching the bank’s policy direction and internal dynamics.
In Europe, progress in Ukraine peace talks remains slow, with disputes over security guarantees and the status of Russian-occupied territory still unresolved. The US and Russian officials have differing views on the peace proposal tabled by the US administration, which could potentially release a swing in oil supply of over 2 million barrels per day.
Commonwealth Bank of Australia analyst Vivek Dhar notes that a ceasefire is the main downside risk to the outlook for oil prices, while sustained damage to Russia’s oil infrastructure is a significant upside risk. Dhar also predicts that oversupply concerns will eventually be realized, especially as Russian oil and refined product flows eventually circumvent existing sanctions.
The Group of Seven countries and the European Union are in talks to replace a price cap on Russian oil exports with a full maritime services ban, which would likely further curb supply from the world’s second-largest oil producer. The US has also increased pressure on Venezuela, including strikes against boats attempting to smuggle illegal drugs and talk of military action to overthrow President Nicolas Maduro.
Meanwhile, Chinese independent refiners have increased purchases of sanctioned Iranian oil from onshore storage tanks using newly issued import quotas, easing a supply glut. The development comes as investors continue to monitor the impact of geopolitical risks on the global oil market. With the Federal Reserve meeting scheduled for this week, investors will be closely watching the bank’s decision and its potential impact on oil prices.
